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Funds blocked in the bank account for IPO get released in the event of non-allotment. Find out more about the IPO refund procedure.
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When an investor applies for an IPO, the funds in the bank account are blocked or a lien is marked in the bank account. On the day of the allotment, the funds required for the allotment of shares are debited and the balance is released.
The release of funds in an IPO is the process by which some or all of the amount blocked for the IPO application is released, depending on the allocation status. Once the funds are released, the investor can use the amount as desired.
As per the rule, IPO refunds must be initiated within 4 working days of the close of the public offer. If the money is not refunded/released within the specified timeframe, the issuer must pay a penalty. The issuer has to return the money to the bidders with interest.
In this chapter, we look at the various aspects of refunding and releasing money in IPOs.
The issuing company is obliged to release the blocked money in the following cases:
If an investor does not receive an allotment or receives only partial allotment, the registrar or the bank must unblock all or the partial amount.
If the issuer does not receive the minimum subscription of 90% of the net offering, the issuer must refund the money/release the subscription amount.
In some cases, the issuing company does not receive permission to trade from the specified stock exchanges where the securities are to be listed. In such cases, the issuer has to refund/release the IPO application money to the investors.
If the prospective allottees of the company is less than 1,000, the issuer must refund/unblock the IPO subscription money to the bidders.
In case of an issue through QIB route, if the issuing company fails to allot at least 75% of the offer to QIB, the entire subscription money must be returned to the investors.
The below table depicts the IPO initiation refund time as guided by SEBI
|
Reason for Refund |
Timeline |
|---|---|
|
Non-Allotment |
Within four days of issue closure. |
|
Non-receipt of listing permission |
Within four days of receipt of intimation of rejection of listing from stock exchange/s. |
|
Non-receipt of minimum subscription |
Within four days of issue closure. |
|
Minimum number of allottees not achieved |
Within four days of issue closure. |
|
Failure to allot to minimum 75% of QIB under QIB route |
Within four days of issue closure. |
Thus, the date of the initiation of IPO refund is generally four business days after the closing date of the issue. It varies for each IPO and is specified in the Red Herring Prospectus (RHP) for that IPO. Investors can also check for the IPO initiation refund dates/IPO funds unblocking dates and other details about each IPO on the Chittorgarh website.
The registrar of the IPO initiates the refund of IPO funds. It is the responsibility of the Registrar to coordinate with the banks/self-certified syndicate banks (SCSB) to unblock the bank accounts and process IPO refunds.
The SCSB refunds the IPO amount to investors in various ways. The refund mode depends on the method used in applying for the IPO and the investor category. The table below provides an overview of the different reimbursement methods.
|
Mode of Refund |
Instruction for return of funds |
Investor Category |
|---|---|---|
|
ASBA |
Unblocking of the amount |
· Retail Individual Investor (RII) · Non-Institutional Investor (NII) · Qualified Institutional Buyer (QIB) |
|
UPI |
Revoke the mandate |
· Retail Individual Investor (RII) |
|
Electronic mode |
Dispatch of refund order to credit the Anchor Investor's bank account via NACH, NEFT, Direct Credit, RTGS |
· Anchor Investor |
It often happens that amounts do not get unblocked after an IPO or investors do not receive the credit within the period specified in the offering document. In such cases, investors may do the following:
The Issuer may pay an interest at the rate of 15% p.a. if the refund is not processed or amounts are not unblocked within the specified time limits.
The National Payments Corporation of India (NPCI) has launched NACH for banks, financial institutions, corporates, and government agencies to facilitate high-volume, regularly recurring interbank electronic transactions.
National Automated Clearing House (NACH) is a centralized system introduced with the objective of consolidating multiple ECS (Electronic Clearance Services) systems operating across the country.
The NACH system allows member banks to develop their own products. It also addresses the specific needs of banks and businesses, including a refined Mandate Management System (MMS) and an online Dispute Management System (DMS) combined with strong information sharing and customized features MIS.
NEFT is a nationwide payment platform used by many banks. NEFT makes it easy and hassle-free to transfer money from one bank account to another bank account. You no longer have to go to the bank to transfer money, you can transfer the money from home.
There is no minimum or maximum amount for transactions. However, generally the maximum amount per transaction is Rs.50,000 for newly added beneficiaries.
RTGS is a system for high-value transactions where money transfers are settled in real-time, one at a time and on a transaction basis (without netting).
The minimum amount that can be transferred through RTGS is Rs 2,00,000, with no upper or maximum limit.
Direct Credit is an electronic transfer of funds through the ACH (Automated Clearing House) system.
The payment is initiated by the payer, who transfers the funds directly to the payee's bank account. Settlement takes place within one to two business days.
In the QIB route, the IPO must follow the book-building process, and QIBs (Qualified Institutional Buyers) should receive at least 75% of the issue volume.
The QIB route is an alternative route for an IPO if the issuing company does not meet the profitability standards to be eligible for an IPO. The QIB route is also known as a mandatory issue in a book-building process.
A qualified institutional buyer (QIB) is an institutional investor who has the necessary expertise and financial background to carefully evaluate capital markets and invest strategically.
IPO Refund is unblocking/credit of funds that were blocked/debited while applying for an IPO.
The IPO money will be returned in case of the following scenarios:
The initiation of IPO refund is expected to be done within four working days of the issue closure.
IPO refund dates/Unblocking dates of IPO funds are specified in the Red Herring Prospectus (RHP) for each issue. Please see the table below for an overview of the IPO reimbursement in each scenario:
| Reason | Timeline |
|---|---|
|
1. Listing Permission not received |
Within 4 days of receipt of intimation of rejection of listing from stock exchange/s. |
|
2. Failure to reach the minimum subscription of 90% of the net offer. 3. Minimum no. of allottees is less than 1,000. 4. At least 75% of the allotment to QIB is not made through the mandatory book-building method. 5. No Allotment. |
Within 4 days of issue closure. |
|
6. IPO Cancellation Refund |
Generally within 1-2 days of cancellation or expiration of the UPI mandate (if applicable) |
Investors do not need to submit any request to receive the IPO money.
In the case of ASBA bids, the blocked amount will be released from the investor's account. In the case of UPI bids, the mandate will be revoked. In other cases, which usually apply to anchor investors, the amount will be credited electronically, either through NACH, RTGS, NEFT or direct credit. The initiation of refund by the issuer is done within four working days after the closure of the issue.
The Registrar instructs the SCSB to unblock the required amount or refund the amounts to the investor as soon as the allotment is completed.
You can check your bank account to know the IPO refund status.
Generally, you will receive notification of the refund/unblocking on the IPO refund initiation date. However, if you do not receive a message, log in to your bank application or website to check if the funds in the ASBA account are unblocked.
For UPI bids, the mandate will be revoked on the IPO refund initiation date or on the mandate expiration date depending on the bank policy. Therefore, it is important to check the mandate expiration date when approving the mandate and change it if necessary.
You can recover money from an IPO by either canceling the IPO (applicable for RII's), selling IPO shares when listed, or waiting for refund initiation if no allotment is made.
IPO money is refundable only in case of below scenarios:
If you have not received your IPO refund or the amount is not unblocked, contact your bank and the IPO Registrar to check the status.
The registrar and banks are responsible for reimbursing IPO funds.
Follow the below steps if funds in your bank account are not released or you do not receive credit of the IPO money within the specified deadlines:
Note: There is no specific IPO refund mail format. However, providing each intermediary with the complete IPO application information and your contact details enables them to easily answer the queries.
The funds will be unblocked from the ASBA account on the refund date specified in the IPO Offer Document .
The amount of unblocking/refund depends on the allotment status.
As per the new SEBI guidelines, the timelines for IPO refunds have been shortened. The issuing company is required to refund the IPO money to the investors within four working days of the closing of the issue.
As a rule, the IPO refund initiation takes 4 working days after the closing date of the issue.
Once the allotment is completed, it is the Registrar's duty to inform the bank of the allotment status and accordingly initiate for refunds in case of partial allotments and non-allotments. The Bank and Registrar must work closely together to ensure smooth and timely processing of refund amounts/release.
If there are any delays, contact the concerned bank or the Registrar of the IPO for the status of the IPO refund.
The refund of the IPO surplus is the refund of the excess amount that remains after the required amount in the allotment.
When investors apply for an IPO, the application money is blocked from your bank account. At the allotment, investors can either receive a full allotment, partial allotment or no allotment.
In case of full allotment, the entire blocked amount will be debited from the account. In the case of a partial allotment, the account will only be debited for the amount equal to the number of shares allotted. The remaining amount will be released as surplus on the date of refund of the IPO. In case of non-allotment, the entire amount will be returned to the investor.
The Bank will send a message/notification regarding the credited or released IPO refund amount.
Unblocking of IPO monies are expected to be done in accordance with the deadlines specified in the IPO Offering Documents. If investors do not receive a notification from the bank, log into the bank account and check for the unblocked amount or credit as expected. In case of no updates, contact the bank to check the status.
Investors will receive a refund when there is no or partial allocation.
Investors experiencing difficulties with unblocking of IPO funds or IPO refunds can file complaints at SCORES. This is an online portal of SEBI for filing complaints.
You can also submit a physical letter to SEBI stating the problem statement with full details. Filing a complaint with SEBI should be the last resort to resolve the issue.
SEBI Helpline for Investors: 1800 266 7575 or 1800 22 7575
Points to Note: Please make sure you contact your bank and the Registrar at the IPO before filing a complaint with SEBI. Also keep the details of your application handy.
The initiation of IPO refund should be made within four business days of the closing date of the issue.
It is expected that the banks/SCSBs and the Registrar will work closely together to arrange for the refund or release of funds for the IPO promptly. However, sometimes there may be problems on the part of the bank or registrar, which may delay the process and make the refund take longer than the specified deadlines.
In the case of an IPO UPI refund, the mandate may be revoked on the mandate expiration date, which may be after the IPO refund initiation date. Therefore, in case of delays, first, contact your bank and then the Registrar to know the exact status of the IPO refund.
The amount blocked for IPO application gets released within four business days of IPO closure.
The applicant continues to earn interest on the blocked amount however cannot use it. Once the amount gets unblocked, the applicant is free to use the money for any purpose.
The extent of unblocking depends on the allocation status. In case of partial allotment, only partial amount gets released and the rest gets debited. In case of no allotment or IPO cancellation either by applicant or issuer, the entire amount gets released.
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